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Important earnings reports to watch this week

Wall Street may be roaring again and manufacturers see a bright future selling their wares in Asia. But for many Americans, it's still a downturn until the jobs come back.
/ Source: The Associated Press

Wall Street may be roaring again and manufacturers see a bright future selling their wares in Asia. But for many Americans, it's still a downturn until the jobs come back.

This week, earnings from several companies with deep ties to corporate payrolls, consumer demand and the labor market will show whether employers are hiring, firing or holding off on filling vacancies.

This recession has already seen more than 7 million lost jobs. That's because shoppers slowed their spending, bank lending froze and businesses cut back on capital investments. So cash-strapped companies slashed payrolls — and benefits — in order to curb expenses as sales dropped.

With lending and spending still weak, companies may not be ready to start hiring again anytime soon.

The unemployment rate in September was 9.8 percent, a 26-year high. Layoffs are slowing, but joblessness is expected to peak above 10 percent early next year.

"You're looking at really sluggish growth," said Joel Naroff of Naroff Economic Advisors. Economic activity could grow 3 percent or less for years to come, he said, and productivity gains mean companies won't need to hire many people.

Private economists predict that the unemployment rate won't drop to a more normal 5 or 6 percent until 2013 or 2014.

In order for them to fill vacancies now, employers need to see increasing demand — higher sales — for their goods and services from U.S. shoppers and businesses.

"There's a few positive signs, but there's still a shortfall in (corporate) profits from where they were a year ago or two years ago especially," said Jeff Bergstrand, an economist at the University of Notre Dame's Mendoza College of Business. "There's still a lot of cost cutting going on."

Here's a closer look at the companies reporting and what their results can tell us about the job market:

Monster Worldwide Inc.
Why it’s important: Monster Worldwide Inc. is a popular help-wanted Web site. Because it's used by job hunters and companies looking to hire, Monster provides a broad view of the employment market.

When it will report: Thursday, Oct. 29.

What the experts say: Monster will break even in the third quarter on revenue of $216.7 million, according to analysts surveyed by Thomson Reuters. Those results would be down from profit of 35 cents per share on revenue of $332.2 million a year earlier.

You’ll know the economy is improving if: Monster's revenue and earnings show that more companies are contracting with Monster to post jobs and gain access to job seekers' resumes.

"I think what we're going to see from a number of employment companies, including Monster, is that the worst is behind us," said Jim Janesky, an analyst for Stifel Nicolaus.

You’ll know the economy is not improving if: Monster's results show that staffing remains stagnant as employers continue to balk at hiring. Employment typically lags economic recoveries as employers refuse to hire until they are confident an economic upswing is sustained.

The quote: "There has been a ... shift going on for 10 years, of movement from print to online. That movement has not overcome the headwinds that Monster and other employment companies faced when the economy declined and unemployment rose," said Stifel Nicolaus analyst James Janesky.

WellPoint Inc. and Aetna Inc.
Why they’re important: WellPoint has more members than any other U.S. health insurer with more than 34 million people enrolled. It operates Blue Cross and Blue Shield plans in 14 states, including California, New York, and Ohio. Aetna is the third-largest insurer based on enrollment.

Health insurers have been hurt during the recession by employer layoffs, which reduce the number of people covered by employer-sponsored group health insurance. Some companies have cut benefits entirely.

When they will report: WellPoint reports Wednesday, Oct. 28. Aetna reports Thursday Oct. 29.

What the experts say: On average, analysts polled by Thomson Reuters expect WellPoint to post a profit of $1.37 per share on revenue of $15.15 billion for the third quarter. They expect Aetna to post a profit of 66 cents per share on $8.68 billion in revenue.

You’ll know the economy is improving if: The number of people covered by their employer-sponsored insurance grows or falls less than expected. In the second quarter, WellPoint's commercial enrollment fell 2 percent. BMO Capital Markets analyst Dave Shove said he thinks it will fall another 3.5 percent in the third quarter. Aetna's commercial enrollment, which also includes individual policies, grew 8 percent in the second quarter.

You’ll know the economy is not improving if: Enrollment in employer-sponsored plans falls more than expected. This could mean employers are still cutting jobs. UnitedHealth Group Inc., the second-largest health insurer based on enrollment, said last week that its commercial enrollment fell 6 percent in the third quarter.

However, insurance enrollment can be what economists call a "lagging indicator" because companies sometimes wait to cut jobs until they absolutely have to. In other words, long after their business started to tank. Now, employers may be waiting to make sure the economy has recovered, or that their business is improving, before they resume hiring.

The quote: "You're talking about the largest health insurer in the United States, and we've always felt this about WellPoint, it really is a proxy for what's going on in health insurance" said BMO Capital Markets analyst Dave Shove.

Apollo Group Inc. and DeVry Inc.
Why they’re important: Apollo, which operates the University of Phoenix, and DeVry are two of the largest for-profit education providers. Both have had big jumps in enrollment throughout the recession as job seekers look to bolster their resumes. The for-profit sector has been able to open new campuses and offer more online courses to meet demand for career training.

When they will report: Tuesday, Oct. 27.

What the experts say: On average, analysts polled by Thomson Reuters expect Apollo to post a profit of $1.04 per share on revenue of $1.03 billion for the fiscal fourth quarter. Analysts expect DeVry to have a fiscal first-quarter profit of 65 cents per share on revenue of $417.1 million.

You’ll know the economy is improving if: Enrollment growth slows. These career-oriented schools often attract the unemployed and underemployed, and they saw enrollment grow by about 20 percent this year as people lost jobs. A slowdown in new student growth could signal that companies are hiring again.

You’ll know the economy is not improving if: Enrollment rises. If Apollo and DeVry report more increases in new students, and corresponding gains in profit, that's a sign the job market is still in bad shape. Also, if bad-debt expenses rise it's an indication that students may be unable to pay their tuition.

The quote: "While we may be near the end of this (enrollment) run, we do not expect the party to end so soon given continued sluggish employment trends." Jeffrey Silber, BMO Capital Markets

International Paper Co.
Why it’s important: International Paper Co. is the world's largest maker of cardboard box materials and other writing and packaging materials. The recession chopped demand for these products as companies scaled back. IP has been closing and idling plants since 2008 and it will continue into next year. Last week the company said it will eliminate 1,600 positions — nearly 3 percent of its current payroll — as it brings capacity in line with demand.

When it will report: Wednesday, Oct. 28.

What the experts say: Analysts polled by Thomson Reuters expect International Paper to post a profit of 24 cents per share on revenue of $5.90 billion, down from 35 cents a year earlier on revenue of $6.8 billion.

You’ll know the economy is improving if: International Paper says stockpiles of containerboard, the material that cardboard boxes are made of, are falling — an indication that box makers think demand for containers that hold everything from tiny porcelain dolls to big refrigerators will increase.

You’ll know the economy is not improving if: IP reports worse-than-expected demand or bulging inventories, which could indicate companies don't think consumer demand has strengthened enough for businesses to increase orders of goods.

The quote: "When we look at global economic conditions today, it appears the worst is behind us," CEO John Faraci said in late July. "We have not seen any signs of sustainable progress in North America, but it appears demand has stabilized at lower levels."